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On Wednesday, I had the pleasure of interviewing Chuck Bentley, the CEO of Crown Financial Ministries, about his upcoming book The Root of Riches: What If Everything You Think about Money Is Wrong?. The book will be released in the next week or so, but if you’d like to get a 20% discount you can go to http://www.crown.org/rootofriches and sign up to pre-order the book and get a free sample chapter.

I had the chance to read the book before the interview and I highly recommend it to all of you. Chuck does a good job of getting to the heart of our issues with money by highlighting how being rooted in Christ is the only way to receive true riches. The interview below will give you a good overview of the central ideas in the book and help you determine if it’s something you’d want to read.

I’ve included the audio here which you can listen to on the website or download for later. I’ve also transcribed the interview for those of you who prefer to read. I’d be interested in your feedback on how well you liked this because it’s the first time I’ve tried doing an interview/podcast. (I was quite pleased with how my intro and outro music turned out!) Feel free to leave your thoughts in the comments at the bottom of the page, and if you have any questions I’ll do my best to answer them.

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Note: I was not paid anything to post this interview. I only agreed to it after reading the book because I believed Chuck’s message in The Root of Riches is excellent and needs to become more prominent in Christian personal finance.

With tax time fast approaching, I thought it might be a good idea to share a tax tip with you all that I’ve found useful for my clients. By combining a Traditional IRA deduction with the Retirement Savings Contribution Credit (sometimes called the Retirement Saver’s Credit), you can reduce your taxes by quite a bit after the tax year has ended because you don’t have to make IRA contributions until April 15. You may be able to reduce your taxes (and increase your refund) by up to $2,000 with this tip.

This tip works because the size of the credit increases as you reduce your adjusted gross income (AGI). Making a deductible Traditional IRA contribution lowers your AGI. Depending on your income, you can make yourself eligible for the Retirement Savings Contribution Credit or increase the amount of your credit. Here’s what you need to know.

The Drawbacks

This tip won’t work if you’re under 18, a full-time student, or can be claimed as a dependent on someone else’s tax return. Those are basic requirements for the Retirement Savings Contribution Credit. If any one of those apply to you, this won’t work.

Additionally, this tip only works at lower incomes (and it works best at very low incomes). The problem here is that people with low incomes often have a more difficult time contributing to retirement accounts. Here are the adjusted gross income limits for 2010 before counting the IRA deduction:

Single or Qualifying Widow(er) – $32,750 ($33,750 if you’re 50 or older)

Head of Household – $46,625 ($47,625 if you’re 50 or older)

Married Filing Jointly – $65,500 (up to $67,500 if you’re both 50 or older, $66,500 if only one of you is 50 or older)

This tax move doesn’t work if your filing status is married filing separately because the phaseout range for a deductible IRA contribution is so small.

Finally, the Retirement Savings Contribution Credit is not a refundable tax credit. This means it will only reduce your tax liability to $0 – beyond that it won’t get you any extra money. That doesn’t mean it’s useless though. If you have other refundable tax credits, this tax tip could increase the refund you get back from those credits because it reduces your tax first.

How to Do It

Assuming you meet the requirements, your income isn’t too high, and you have some tax due, the next thing you’d want to figure out is how much you should contribute to an IRA to get the most benefit from the Retirement Savings Contribution Credit. You’re going to need to do a little math to figure this out, including considering ira rates. Alternatively, you can just do your tax return several times using different IRA contributions to see how things work out.

If you’re going to figure it out manually, you’ll need to first look at your tax due to figure out how big of a credit you need. On Form 1040, you’ll find your tax due on line 60. As I said before, the Retirement Savings Contribution Credit isn’t refundable, so you only need a credit as large as your tax due. Any more than that is useless.

Once you know the maximum amount you’d need from your credit, you’ll want to figure out how much of a credit you can get. There are two things you need to keep in mind. First, the Retirement Savings Contribution Credit is calculated as a percentage of your retirement contributions. But the credit is only calculated on up to $2,000 in contributions (or $4,000 if you’re married filing jointly – $2,000 for each of you). Second, the percentage depends on your adjusted gross income (after your IRA deduction) according to the table below. You can also find this information on Form 8880 – Retirement Savings Contribution Credit.

Filing Status

50% Credit

20% Credit

10% Credit

Single or Qualifying Widow(er)

up to $16,750

$16,751 to $18,000

$18,001 to $27,750

Head of Household

up to $25,125

$25,126 to $27,000

$27,001 to $41,625

Married Filing Jointly

up to $33,500

$33,501 to $36,000

$36,001 to $55,500

So let’s say you’re single and your AGI is $30,000. You wouldn’t qualify for the Retirement Savings Contribution Credit unless you make a deductible IRA contribution of at least $2,250 to bring your AGI down to $27,750. That would get you down to the 10% credit range. Your credit would then be $200 (10% of $2,000). It doesn’t matter that you contributed $2,250. The credit is only calculated on the first $2,000 of your retirement contributions. But you might have to contribute more than $2,000 to make yourself eligible.

Want to see a more exciting example? Let’s say you’re married filing a joint return and your AGI is $37,500. As you stand now, you’d be eligible for the 10% credit on any retirement contributions you’ve made (this credit includes 401(k) plan contributions and similar accounts). But by making two deductible IRA contributions – $2,000 for you and $2,000 for your spouse – you can bring your AGI down to $33,500. This makes you eligible for the 50% credit and would lower your taxes by $2,000 ($4,000 * 50%). You just made a $4,000 contribution to your retirement accounts at a net cost of $2,000! I’d say that’s a good deal.

I like this tax tip because I’ve seen it work for myself and many others quite well. There are a few other aspects of this tip that I didn’t cover here, but I’ve given you enough info to get started on it. It’s a great way to boost your retirement savings while reducing your taxes – sometimes by quite a bit!

In my post on why the save 10% of your income for retirement rule is stupid I mentioned that expecting you’ll need 80% (or 90% or any other %…) of your pre-retirement income in retirement is stupid as well. How much income you’ll need in retirement is one of the major variables in calculating what you should save for retirement, so it’s important to use the most accurate estimate you can. Relying on a percentage rule of thumb is likely to steer you in the wrong direction for several reasons. Here are a few.

Housing

Do you plan on downsizing in retirement? Or maybe you’re thinking about upgrading. Planning to move? That’s going to change more than just your housing costs. If you’re going to be renting or still paying a mortgage in retirement, you’ll need to figure that in as well.

Consider maintenance costs as well. If you’re a handyman now and do most of your own repairs, how long will you be able to keep that up in retirement? Eventually, your physical abilities are likely to become limited and then you’ll need to hire others to do those repairs.

You can’t plan for every possible variable in your housing costs, but these are the kinds of things you need to consider when figuring out how much income you’ll need in retirement. Housing is the highest cost for most people, so it’s even more important you get this one as accurate as you can.

Transportation/Travel

Have you thought about how your transportation and travel costs might change in retirement? I’m guessing they’re probably not going to mirror your pre-retirement spending. The lack of a commute and the desire to travel more may offset each other for some people but not for most. This one might be difficult to figure out all at once, but if you take each aspect at a time you can come up with a reasonable estimate.

Food

Will you be more likely to eat out in retirement, or do you want to improve your culinary skills and cook more at home? You’ll have an excellent opportunity to lower your food costs in retirement by cooking more from scratch, but many retirees look to eating out as a way to engage in social life and get out of the house. Depending on your preferences, skills, and plans, this could be another area that you’ll need to consider carefully.

Health

During retirement, you’re going to be shouldering more of your health insurance expenses. Your health will also be at a higher risk of declining as you age, so you’ll have to expect more health costs overall. This is one area where many retirees experience a large increase in spending – especially as retirement goes on.

Income Taxes

Depending on your personal situation and how you decided to save for retirement, your taxes in retirement could look quite different than before retirement. This is especially true if the income you’ll need in retirement is very different from your pre-retirement income. There are a number of variables that affect income taxes and they change from person to person. Assuming you can count on an average to help you might the right decision for your retirement is foolish.

Savings

This is at least one area where the percentage rules directly account for some changes in retirement. But there’s still a problem. Maybe you waited until 10 years before retirement and had to save 30%, 40%, or 50% of your income to catch up. That’s going to drastically change once you enter retirement, so you need to look at your unique circumstances. Or maybe you hit a windfall sometime in your life and haven’t been saving anything for retirement. Following one of these rules of thumb won’t work for your situation either.

It doesn’t matter if you don’t fit into one of the examples I shared above. The point is that your situation is different and unique to you, and you need to plan accordingly.

So How Should You Figure Out How Much Income You’ll Need in Retirement?

I think it should be clear by now that the only prudent way to figure out your retirement income needs is to carefully consider your own situation by looking at your circumstances and expenses alongside your goals. When I was creating my free retirement calculator, I wrote an article specifically designed to help you start thinking about how much income you’ll need in retirement based on your situation. It doesn’t cover every possibility, but it will help you get started.

My goal in pointing out how stupid these rules of thumb are is not to make things difficult for you or to make fun of others who give this kind of advice. I want you to see that your financial decisions involve factors that are unique to you. You shouldn’t risk making a wrong decision because you followed an easy rule of thumb. Take the time to really think about your situation, learn what you need to know so you can make a smart choice, and use that knowledge to manage your money well.

The “save 10% for retirement” rule is absolutely stupid. And so is “save 15% for retirement” (sorry, Dave Ramsey) or “save 20% for retirement” and any other “save #% for retirement” rule you’ll come across. Now I don’t doubt that the people giving this advice meant no harm. They probably just want to get you to start saving for retirement, and offering a simple % of your income solution is a quick, easy answer for a difficult question.

But they’re all absurd, useless rules for one simple reason: they completely ignore your situation. For most people, a simple rule like “save 10% of your income for retirement” is likely to be wrong (and blindly following dumb advice like that can have nasty results). The right answer depends on seven major factors that are specific to you and your situation. Specifically, they are:

Your Current Age

Your Retirement Age

Your Life Expectancy

Your Current Savings

Your Investments

How Much Income You Need for Retirement

Your Current Income

All of these factors work together to determine how much you should be saving for retirement each year. Let’s break them down.

Your Current Age & Retirement Age

The difference between your retirement age and current age determines how long you have to save and invest. If you’re 25 now and don’t plan on retiring until you’re 70, then you’ve got 45 years until retirement. But if you’re 50 and want to retire at 65, well then you’ve only got 15 years. That’s a huge difference!

The longer you have until retirement, the less you’re going to have to save. But these simplistic rules ignore this completely. If you’re young and just starting out, these rules might be OK for you. But if you’re older and haven’t done so well with saving for retirement, you’re not going to be happy when you realize you can’t retire because you didn’t save enough.

Your Life Expectancy

Trying to guess your life expectancy can be a shot in the dark. You don’t really know when you’re going to die. But your health, your habits, and your family history do affect how long you can expect to live. Obviously, the longer you’re likely to live, the more you should save for retirement. But these dumbed-down % rules don’t account for this at all.

Your Current Savings

If you’ve been wise and have already been saving a lot for retirement, you may not need to save 10% of your income. But if you’re 50 years old and haven’t saved a dime, then even 15% or 20% are unlikely to cut it unless you’re willing to make some major changes to your life and retirement plans. How much you already have saved can drastically affect how much you should save for retirement, but once again these % of your income rules won’t help.

Your Investments

Are you so afraid of risk that you’ve vowed only to use CDs to save for retirement? Well, I can tell you that you’re going to need to save a whole lot more than 10% of your income even if you’re starting at 18 and don’t plan to retire until you’re 75. Your investment returns (which are connected to the risk you’re willing to take) will drastically affect how much you need to save. Based on what I can figure, the % rules assume you’re going to invest in a moderately aggressive mix of stocks and bonds that you tone down as you get closer to retirement. So if your risk tolerance is higher or lower, these rules won’t work for you.

How Much Income You Need for Retirement

How much income you need for retirement is also a huge factor in figuring out how much you should be saving. Are you going to get a pension? Well, you’ll need less income from your own savings (lucky you). Do you plan to downsize and cut way back on some major expenses? Then you probably won’t need to save as much. Want to travel the world extensively? You might have to plan on saving more if your retirement expenses are going to drastically exceed your current income.

You see, these % rules assume you’re going to need about 80% or so of your income in retirement. (That’s a stupid assumption for some other reasons, but I’m saving that for a different post.) So if you’re going to be different, these rules just won’t work for you.

Your Current Income

Finally, and this should be obvious, your current income will affect the % you should be saving. Once you consider all these other factors I mentioned above, you can figure out exactly how many dollars you should save for retirement this year. But depending on what you make now, that could be 5% or 25% of your current income. (Or even more!)

The Solution

So how, exactly, should you calculate how much you need to save for retirement? Well, I’d like to say that my handy little retirement calculator is the perfect answer, but it’s not. (It’s free by the way!)

My calculator assumes you’re going to invest using a diversified portfolio of low-cost index funds (also a free calculator) with a moderate-slightly aggressive stock/bond mix. It also simplifies the taxes and doesn’t allow for “lumpy expenses” or significant changes in your retirement spending. Finally, it’s based on some other assumptions that I just can’t know will be absolutely correct. I did my best, but I know it’s not perfect.

My free retirement calculator is certainly an improvement over these stupid % of income rules, but it’s still no replacement for sitting down with a good fee-only financial planner and working it out. So definitely try it out, but do yourself a favor and find a qualified professional to help you as well. And you need to do this more than once. Every few years you should revisit this plan with your advisor and update it as needed.

I know that’s not an easy answer, but at least you’ll have a better chance of actually meeting your goals! Plus, I tried to make my calculator as simple as possible without making it too simple. And trust me, it’s better than most of the other free retirement calculators you’ll find out there because I used hundreds of thousands of Monte Carlo simulations to develop it. So it’s based on assumptions that mimic real market returns (which vary from year to year) instead of assuming a straight % return every single year (like 8%, 8%, 8%, …).

Try it out, let me know what you think, and feel free to share your results here! What % of your income should you actually be saving to reach your retirement goals?

I think it’s a great resource for anyone who’s ever struggled with budgeting, so I’ve included some quotes from his eBook throughout this carnival. You can get the book for 30% off if you buy before midnight (EDT) August 31st, 2010. Be sure to read through to the end of this carnival because I’ll be giving away two FREE copies to two lucky winners!

Editor’s Choice

Here are my top picks from the submissions this week:

Mike Piper from Oblivious Investor presents Dealing with Investment Confusion, and says, “What’s the best approach to dealing with the confusion that comes from being a new investor?” – [Mike shares some good advice for people who are confused about investing. It won’t immediately cure your confusion, but applying this strategy over and over will help you make informed decisions you can stick to.]

Briana Ford from Go Banking Rates presents Why Americans Can’t Afford to Die [Infographic], and says, “If you never thought about this problem before, take a look at how expensive funerals really are. You may discover you, like many Americans, simply can’t afford to die.” – [What can I say? I’m a sucker for infographics.]

Lauren from Richly Reasonable presents 4 Bad Deals, and says, “The term “Bad Deal” is relative. Not only is Necessity the mother of Invention, she is also the mother of many a Bad Deal. Necessity has a TON of children.” – [Funny, smart, and witty – and likely to open a few eyes at least!]

Jacob A. Irwin from My Personal Finance Journey presents Adjusting My Monthly Budget to Account for Home Ownership, and says, “A look at the steps I have recently taken to adjust my personal budget to account for the various elements of home ownership.” – [At our current rent rate owning a home just doesn’t make sense. Just look at all the costs involved!]

Congratulations to the editor’s choice picks! Here are the rest of the articles from this week’s submissions.

Money Management

Jason from One Money Design presents How Do You Live Well on Less Pay?, and says, “There are plenty of people that don’t make a lot of money and have trouble covering basic expenses each month. There are 5 essential tips to follow to live well on less pay.”

Elle from Couple Money presents Financial Tips for College Success, and says, “Many college students are surprised to see how easy it is to build a financial foundation for themselves. Learn how to set up bank accounts, pay your bills, and start a graduation fund.”

DE(a)BTh from Murder Your Debt presents Your Wasted Life, and says, “You thought financing a house and a fast car meant freedom. That an expensive education would lead you to a rewarding career where you could earn lots of money. You were wrong, weren’t you? You hate your career but you’re stuck. You’re stuck because you swallowed the lies you were sold. The lies that material possessions bring success. The lies that more money means more happiness. And now what? You’ve got it all; the cars, the house with the huge yard, the sexy outfits and shiny shoes. But you’re STILL not happy!”

vh from Funny about Money presents Social Security’s Bizarre Rules, and says, “Social Security’s restrictive rules make it impossible to get out of poverty when unemployment forces one into early retirement and stock-market losses militate against retirement fund drawdowns.”

Bob from Christian Finances presents How to spend unexpected income: 3 questions to ask, and says, “It can be tough to know what to do when you receive a large sum of cash – this article will give you some questions to help you figure out what to do with it…”

Mr. GoTo from Go To Retirement presents How Much Long Term Care Insurance Should You Have?, and says, “Insuring against a long term care event is part of personal risk management. Estimating the amount of long term care coverage to obtain requires careful consideration of several factors.”

If you are working 40 or more hours a week to earn your money, don’t you think it is worth an hour or two to set up a budget?

Isn’t it worth spending about an hour every week to manage the money you work so hard to earn? It is always better to manage what you have than to work yourself crazy trying to get more money.

RJ Weiss from Gen Y Wealth presents The Mike Tyson Guide to Financial Planning, and says, “You might be wondering, what in the world can Mike Tyson teach me about financial planning. I promise you, will be surprised.”

Investing

Dividend Growth Investor from Dividend Growth Investor presents 33 Dividend Champions to Consider, and says, “Dividend investor David Fish has created a list of dividend stocks which have raised distributions for 25 consecutive years and has named it the dividend champions list. His list includes 100 companies, which is more than twice the size of the Dividend Aristocrats. I ran a screen on the list in order to identify stocks for further research.”

Squirrelers presents Small Stocks = High Return and High Volatility, and says, “Small stocks, particularly those in the lowest deciles, have performed very well over the long-term. They can be an important part of your asset allocation, provided you can stomach the associated risks.”

D4L from Dividends Value presents My Top 6 Performing Dividend Stocks Just Might Surprise You, and says, “As I have stated many times, my goal is to create an ever growing income stream from dividend stocks. Secondarily, it is my desire to beat the S&P 500 over time. With that said, I rarely look at the capital performance of individual stocks. However, I recently sorted my portfolio by Total Gain % (total gain/basis) and was mildly surprised at the top performers.”

Betty from Control Your Cash presents Health Care. Cheaper than you Imagined., and says, “While a visit to the vet will probably never be enjoyable for the patient, a pet wellness plan can make that visit a lot more palatable for the patient’s chauffeur.”

Adam from Magical Penny presents Financial Lessons from Toy Story 3, and says, “Amidst the humour and tension there are some powerful life lessons in Toy Story 3 so here’s a few I picked up and how they relate to growing and saving your pennies!”

Credit

Tim Chen from NerdWallet Credit Card Watch presents Amex is Hiking Fees on the Starwood Preferred Guest Nearly 50%, and it’s Still a Good Deal , and says, “American Express has started sending out letters to its cardholders, informing them that it plans to raise the annual fee from $45 to $65 starting October 14th, and it’s modifying the rewards program a bit. If you’re a cardholder, you may be considering canceling the card in anger at the prospect of a higher fee, but we don’t think you should.”

Ramsay from Moneyedup presents Credit Report Vs Credit Score, and says, “Credit scores and credit reports are two very different things. Know the difference before you sign up for a free credit report.”

Adam from Rabbit Funds presents 3 Reasons Dave Ramsey is wrong about Credit Cards, and says, “I have been asked if and when using credit cards makes sense. As a general rule, I tell people to never use a credit card. However, if you can exhibit self-control, then there are three reasons I would use a credit card.”

Neal Frankle from Wealth Pilgrim presents 5 Ways to Improve Your Credit Score Fast, and says, “You probably don’t need me to convince you that you should always be looking for ways to improve your credit score. A good credit score will help you get lower rates when you need to borrow money and much more. It can help you get a good job too.”

Craig from Free From Broke presents What IS A Secured Credit Card?, and says, “Sometimes a person is unable to get credit either because they haven’t had credit or they had credit problems in the past. Enter the secured credit card! Here is what it is and why it can be useful.”

Big Cajun Man from Canadian Personal Finance presents Large Wallet Syndrome, and says, “Just how many credit cards do I need to carry around these days?”

Junior Boomer from Consumer Boomer presents What is Peer to Peer Lending and is it Risky?, and says, “Peer to Peer lending (sometimes called social lending or person-to-person lending) allows people to borrow money from other people, or lend money to others, without traditional bank participation.”

John from Passive Family Income presents 18 Tips on Using a Credit Card Rewards Program, and says, “If you are going to open up a credit card, my suggestion is to find one that offers a cash back or rebate program. While most financial experts tell you to stay clear of these type of accounts, I believe a credit card rewards program can be used to your advantage.”

The goal of the budget is to help you spend less than you earn.

Therefore, this becomes the single criteria for an effective budget – does it help you spend less than you earn?

Reviews

PT from PT Money presents Free Prepaid Credit Cards, and says, “A thorough, original review of the best free prepaid credit cards, including those that are free of activation and monthly fees. These cards are great for those who need to avoid debt, or those that can’t get a traditional bank account.”

Real Estate

FMF from Free Money Finance presents How to Hire a Home Inspector, and says, “When you buy a home, you need to be sure you hire a good home inspector to identify any potential problems. This post gives tips on how to do this.”

Jeff Rose from Good Financial Cents presents Should You Upgrade to a Larger Home”, and says, ”
In many markets, home owners are looking at homes in the next price range up as good buys, since foreclosures and a slow market are resulting in good deals. But, as tempting as it is to upgrade to a larger home, is it really a good idea? Here are some things to consider before upgrading to a larger home.”

Taxes

pkamp3 from Don’t Quit Your Day Job… presents Tax Incidence, and says, “Who really pays for a tax when it is enacted? If the government enacts a new tax on washing machines, is the entire tax on Maytag? The consumer? Cameron Daniels breaks down the details.”

A budget lets your spouse see your values and priorities in a tangible way.

A budget forces you to communicate not just about your life goals, but also about your daily financial preferences.

Career

Kristina from Dinks Finance presents A DINK in The Office, and says, “As a married or unmarried employee with no children, are you treated differently than your colleagues with kids?”

Nicole from Nicole and Maggie: Grumpy Rumblings presents Why did you go to graduate school?, and says, “Nicole and Maggie discuss reasons for graduate school and how sometimes we’re directed into a career for the right reasons and sometimes we fall into it for the wrong reasons. But it turns out OK anyway (or maybe it doesn’t, but you can always change your mind).”

Economy

Bret from Hope to Prosper presents Trillion Dollar Public Pension Shortfall, and says, “An article in the New York Times stated that there is a $1 Trillion dollar public pension shortfall. Despite repeated denials from PERS and public employee unions, public pensions are in big trouble.”

Paul Williams (that’s me!) from Provident Planning presents I Am More Than My Income, and says, “Do you value your self-worth based on your income? Do you beat yourself up because you’re not making enough, or do you gloat because you earn so much? I did that to myself, but now I’m realizing that my worth has nothing to do with money.”

The Secret to a Successful Budget eBook Giveaway!

As promised, I’m giving away two free copies of The Secret to a Successful Budget courtesy of Craig. To enter, all you need to do is leave a comment on this post telling me how budgeting has helped you OR your biggest struggle with budgeting. I’ll use random.org to select two winners tomorrow evening (August 24, 2010) at 5:00 PM EDT so be sure to enter by then!!! I’ll update this post to announce the winners, but use a valid email address when you comment so I can reach you if you win. Good luck!

[Update: Laura has won a free copy of The Secret to a Successful Budget! Congratulations!!!]

If someone were to look at your bank or credit card statement, would they see a Christian? Are the choices you make still following the pattern of the world? Or have you been transformed by the renewing of your mind and presented your body (and your money) as a sacrifice to God?

1 Therefore I urge you, brothers, by the mercies of God, to present your bodies a living sacrifice, holy, acceptable to God, which is your spiritual service. 2 Don’t be conformed to this world, but be transformed by the renewing of your mind, so that you may prove what is the good, well-pleasing, and perfect will of God.

Romans 12:1-2 (WEB)

These verses encourage us to live changed lives in light of God’s overflowing mercy toward us. I would not begin to imply that it relates specifically to finances. However, the choices you make with the money God has given you can clearly reflect where your heart is focused. When you make your money decisions are you thinking in terms of God’s will, or are you continuing in the patterns of the world?

This doesn’t mean that you are perfectly holy and good if your account statements show that you give all your money away (or even live on very little and give the rest away). Outward appearances are not necessarily an indication of the heart. Jesus spent most of His time teaching this exact idea. If you do not have God’s love and your actions are not motivated by that same love, then your pious actions will help you in no way.

The challenge I want to present to you (and myself) is simply this: In your earning, spending, and managing money, how are you presenting yourself as a sacrifice to God and seeking His will? In other words, are your money decisions in alignment with God’s principles and values?

It’s very easy to live just as the rest of the world does. In many ways, Christians are indistinguishable from non-Christians. But we are called to live differently. This doesn’t necessarily mean rejecting everything the world does, but it will often look that way. Rather, we must give everything over to God (as a response to the gift of salvation) and seek His will.

A transformed life may not look very different from the world. Much personal finance advice is good regardless of your faith (though the motivations may be quite different). On the other hand, it may be the exact opposite of the world’s ways. Giving is one example. It simply doesn’t make sense if you look only at the numbers.

How your life will look is not the point. A transformed life could look different from one Christian to another (though there will be some similarities). The point is whether or not you are seeking that transformed life, seeking God’s will, and striving to persevere until the end. A life of following Jesus is not marked by the absence of sin. It is marked by striving against sin, by denying your own will, by giving up those things that keep you from God, and by taking up your cross each day. If you’re willing to do that (you’ve counted the cost), then God will transform your mind and your life as you grow in the likeness of Christ.

So take time (at least each month, if not more frequently) to ask yourself this question as you review your finances: Am I following Jesus, or am I following the world?

Jacob is a bit of an anomaly in our culture – he’s a retired 34 year old, but he’s not rich (based on typical standards). He was able to retire early by saving 70-80% of his income for five years. He did not make a ton of money during that time. I think his salary was around $40,000-50,000/year while he was saving. He simply lived very frugally and saved the rest. Now, he still lives frugally but no longer needs to work to cover his expenses. Despite the fact that he doesn’t need to work, he does – and he makes enough to cover his expenses.

Cheap Living

Jacob lives on about $7,000 per year. He’s able to do this because he’s learned to live cheaply – especially when it comes to the major areas of most budgets (housing, transportation, food, etc.). He doesn’t have a car, finds cheap/free forms of entertainment, and eats healthy meals with little to no meat. He currently lives in an RV with his wife, but he admits it’s not a necessary choice to duplicate his results.

Should We Retire Extremely Early?

I don’t highlight Jacob as an example to be followed for extreme early retirement. I don’t think early retirement as a goal in and of itself as admirable or desirable for a Christian. (I also don’t dismiss it as a goal because I can see how God could use a person in this situation for full-time volunteer work or missionary work – a self-funded missionary if you will.) I’m highlighting Jacob and his choices because he offers insights that Christians can use to question the cultural norms and make choices that can lead to extreme generosity.

For example, Jacob’s views on housing, insurance, and “sacrifice” greatly coincide with my own. (I don’t really agree with him on investing, but that’s irrelevant.) He doesn’t see money as necessary to have fun or live comfortably. He avoids waste. He learns new skills so he can make and do more stuff himself. His approach to living cheaply so he could retire extremely early can be adapted by Christians who want to give generously.

How Can We Use Jacob’s Examples to Honor God?

What I ask is that you read his articles from the perspective of how they can help you better serve God in your finances. Unless God has a specific purpose for you retiring early, that’s probably not a goal that will glorify Him. But we can use the same ideas Jacob used to enable extreme generosity in our lives by reducing our expenses and questioning the cultural norms. If you find something particularly insightful or helpful on his website, please feel free to share it in the comments below.